Bank of America has reopened the crash signal on its European Momentum Conviction Indicator after a 30-day interval, according to the bank's report. The firm notes that the current episode appears to fit a pattern of aftershock fragility rather than signalling a high-probability, multi-wave crash in 12-month price momentum.
The bank highlights that the reopening occurred close to the trough in 12-month price momentum and after most of the deterioration in the underlying inputs had already taken place. In searching its archives for precedent, Bank of America identified only three comparable cases of similar reopenings following an initial momentum crash: March 1999, November 2000, and February 2021.
Monthly revision metrics for July showed a weakening trend in short-term analyst revisions. Sales revision ratios slipped to 1.07, while earnings-per-share revision ratios moved down to 0.98, placing EPS revisions back into net-downgrade territory. Dividends per share ticked up marginally to 1.50, while buybacks fell to 1.51.
Other corporate metrics were mixed: inventories strengthened to 2.13 and capital expenditure revisions rose to 2.05. Net debt revisions declined to 1.23, and price target revisions reached 2.34.
Fund flow data for the most recent week show Europe-focused equity funds recorded total outflows of $2.28 billion. Active funds accounted for $0.95 billion of those outflows, while passive funds registered $1.33 billion in outflows.
At the same time, constituents of the EURO STOXX 600 index drew $3.05 billion of inflows overall. Those inflows were driven by passive allocations, which contributed $3.24 billion, compared with $0.19 billion of outflows from active funds.
July's performance among value segments was notable: cheap value stocks outperformed expensive value stocks by 17% in the month. Bank of America notes this represented the fifth-strongest monthly return on record and the strongest since January 2022. The outperformance was broad-based, occurring across 18 of 20 sectors and in all eight countries included in the bank's analysis.
Collectively, the reopened momentum signal, coupled with the revision and flow dynamics, presents a nuanced landscape for European equities. The bank's framing of the episode as aftershock fragility suggests the immediate risk may be concentrated around momentum metrics that recently hit troughs rather than signalling an extended multi-wave deterioration.